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Sinking feeling

26 October 2011 By Wayne Arnold

Olympus needs a clean break. The Japanese conglomerate has sidelined its chairman, less than two weeks after ousted chief executive Michael Woodford began to accuse the company of mismanagement and poor governance. Yet rather than usher in a big change, the latest move merely shuffles the former managers who still dominate Olympus’ board. Shareholders need an official investigation to clear the air around the company, and a new chief executive to put it on a steadier course. They should also demand the board let in some fresh blood.

Investors and the board both share the blame for Olympus’ predicament. With a board dominated by former managers, the company expanded at the expense of profitability, bumping aging executives into its boardroom. Shareholders were content with negligible dividends and scant explanation, which left the company free to pursue unwise transactions. In one ill-thought out move, it paid advisers on the $2 billion purchase of UK medical equipment Gyrus in 2009 with preferred Gyrus shares, which later ballooned in value.

Big questions still hang over the company – like why the advisory fees on Gyrus were paid to a recipient in the Cayman Islands. The company appears to have failed to disclose properly the potential downside of its Gyrus-related preferred-share payment. Whether anything worse than poor judgement was involved will have to be determined by Japan’s Securities and Exchange Surveillance Commission, which has reportedly begun examining the transactions.

In the meantime, shareholders have work to do. They were silent accomplices in Olympus’ misadventures. But they can still call for more change at the top. Either of the two top shareholders, Nippon Life or U.S. fund manager Southeastern Asset, can call the extraordinary general meeting needed to dump Olympus’ board, and propose a credible new chief executive, preferably from outside. They should do so sooner rather than later.


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